Princeton Economist: Romney Tax Plan Mathematically Sound

7 Oct 2012

Bill Clinton, President Barack Obama, and liberal think tanks have claimed Mitt Romney’s plan to cut tax rates across the board by 20 percent is bad arithmetic, but a Princeton economics professor, Harvey Rosen, examined Romney’s proposals in a paper and concluded Romney’s plan would work. The economy would have to grow by 3 percentage points more over the term of his plan than it would have without his plan.

Liberals, who often do not understand how the economy works let alone how to expand the economic pie, failed to work in their assumptions that the purpose of Romney’s tax cuts is to actually grow the economy, which would make people more prosperous. And as the economy grows and more people get jobs, the government would get more tax dollars.

The Tax Policy Center, which is affiliated with the center-left Brookings Institution and Urban Institute, analyzed Romney’s tax plan assuming there would be zero economic growth. The lead analyst in the Tax Policy Center’s study was a former Obama administration official.

“At the same time, the TPC model assumes that regardless of the tax rate, people work the same amount, save the same amount, and invest the same amount,” Rosen wrote in his paper. “Thus, changes in the tax code have no effect on the amount of before-tax income.”

And, as The Weekly Standardpointed out, there are “at least three critical flaws” with the the TPC study:

(1) it assumes pro-growth tax reform can’t actually produce economic growth, (2) it assumes two tax expenditures worth $45 billion per year are not ‘on the table’, and (3) it assumes tax reform must pay for repealing Obamacare’s tax hikes, rather than assuming that the repeal of Obamacare’s spending will pay for repealing the tax hikes.

If these assumptions are taken away, Romney’s plan becomes more feasible.

Rosen also wrote that “it seems odd to assume away possible increases in incomes associated with a given tax reform proposal when its explicit goal is to enhance growth.”

“Rather, a more sensible approach is to consider alternative assumptions about how tax reform might affect the size of the economy, and see how they affect the substantive conclusions,” Rosen wrote.

Rosen concluded that if the economy grew, Romney’s numbers would add up and that growth rate needed to make Romney’s numbers add up was “not impossible.”